from the how-it-all-works dept

Last August, we wrote about an experiment by famous skateboarder and filmmaker Stacy Peralta to self-distribute his latest film, Bones Brigade, about the famous skateboarding crew Peralta himself had put together a few decades ago (the crew included some of the most famous skateboarders ever: Tony Hawk, Lance Mountain, Steve Caballero, Mike McGill and Tommy Guerrero). Peralta had shown the film at Sundance last year, which is where most filmmakers go to try to "sell" their film to a studio/distributor to go make something of it. However, Peralta turned down all such offers (some for significant money), and instead went the "direct to fan" self-distribution path, using tools like TopSpin, and partnering with companies like BitTorrent as well. That's what we wrote about in August.

Now, as the latest Sundance is underway, TopSpin's Bob Moczydlowsky has a post with some details of how it all went, noting that going direct to fan was massively successful for Peralta, allowing him to both make more money and still retain the rights to the film, rather than selling them off to some other entity.

And now, a year after the Sundance premiere and six months from the start of the direct-to-fan release powered by Topspin, Film Sales Company and our partners awe.sm and The Uprising Creative, Stacy has earned more from direct sales than he would have from the combined total of the domestic and foreign sales offers. And, because a Topspin direct release does not require licensing rights, Stacy and Andrew Herwitz from Film Sales Company were then able to do their own Transactional VOD and Third-party license deals. Stacy and his financing partners quickly recouped the budget of the film, and the copyright remains in their hands for the future.

That really is the key. “I self financed, got the investment back, am now in profit and I own the copyright and will continue to earn all other sales for the next ten years,” says Stacy. “And it is all because I was empowered for the very first time to really do it myself from start to finish. Topspin has done for distribution what the Handycam did for shooting or the Avid did for editing. Topspin put it all in my hands and suddenly everything I needed was within my reach: pure and simple filmmakers democracy.”

They also included a nice little pie chart (to scale), showing how much bigger the pie was with what Peralta ended up doing:

This is not to say, of course, that the same thing is true for everyone who tries to go direct to fan. It's right for some people, and not right for others. But the key thing here is that there are more options and many of those options not only leave the actual creators with more control, but also allow them to expand the pie.

One of the more frustrating aspects of discussing these business model issues with some people is their assumption that the "pie" is static (or, worse, shrinking). It's a classic mistake in economics for those who think that everything is a zero sum game. But one of the great things about new technologies and services is how they enable a much broader audience and increase the opportunities, opening up wider possibilities -- especially for creators who really know how to engage with their fans.

Of the 5099 people surveyed between May and July this year, 47% weren’t able to distinguish with certainty between legal and illegal services, while only 16% actually admitted to accessing unlicensed content, and only 8% said they relied on illegal sources of music.

When those infringers were asked why they went to unlicensed content sources instead of legitimate sites or services, the most common responses were that the illegal sites were free, convenient and/or quick. Asked what would convince them to stop accessing illegal content, the three most common answers were that they would do so if legal services were cheaper and had all the content they wanted, and if it was clearer what was legal and what was not.

Malt points out that there are several legal services, most of which are inexpensive, including ad-funded streaming services which give listeners access to thousands of tracks for free. ("Inexpensive" is, of course, relative. Ofcom's study shows that music retailers and streaming services would convert a majority of casual infringers by cutting prices 50-70%. resulting in 2-3x the number of purchases.)

Of course, Malt's speaking about music services in the western world. Worldwide, the situation isn't nearly as seamless. And TV/motion pictures are a completely different situation. While there are several services available, the content is much more fractured and more expensive. Most streaming services (Netflix, Amazon, Hulu) suffer from major studios' unwillingness to license their output at reasonable rates, and pricing on digital products isn't all that competitive.

But as for music services in the US, it's mostly good news, even if it took much longer than it needed to get to this point. Still, Malt then goes on to point out an area where these services disappoint, often through no fault of their own:

The missing content point is a stronger argument, providing file-sharers relying on it really are trying to access tracks that artists or labels have failed to make available through legit routes. And this is something the music business really ought to have solved by 2012.

AC/DC joined the digital party just within the past couple of weeks and a handful of other holdouts have chosen to stay CD-only. The list of holdouts for streaming services is much, much longer, however. But while these holdouts may be giving themselves a slight sales boost, they're doing so at the expense of their own industry.

[W]hile artists perhaps should have the power to control where their music is distributed, many of the Spotify resisters are acts who have made their millions already, and really should be thinking about the good of the wider music community. Because every artist shunning the streaming services is providing ammunition to the aforementioned self-confessed infringers.

The world has moved on, music consumption has changed, and the Napster generation are now at an age where they should be becoming the music industry’s biggest customers, but that’s not going to happen if the legit services they are embracing are lacking catalogue.

Here's where these artists make one of the worst assumptions -- that withholding their music from streaming services will result in a corresponding boost in sales. While there may be a few fans who opt to purchase rather than do without, a majority will find other options, none of which involve purchasing the album.

[A]n increasing number of people, when then can’t find an album on their streaming service of choice, will not just fall in line and go buy the record from the three shops that the artist or label has dictated can sell their music.

When I can’t find ‘Red’ by Taylor Swift on Spotify, I don’t think, “Gosh darn it, I’ll just have to go and buy it from Papa John’s pizza parlour“. I think, “Well fuck it, I’ll just not listen to it then, cos I’ve listened to enough sixteen track pop albums lately to know that a good chunk of it will not be very good. Also, Ed Sheeran co-wrote one of the tracks on it”. Meanwhile those others not willing to take the financial risk of being lumbered with a handful of filler tracks will Google ‘Red for free’ and download it off someone else’s hard drive for nothing.

So, while some artists may despise the Spotifys and Pandoras of the world, withholding their music cedes ground to infringers and other artists. Even if the bump in sales is bigger at this point in time, that won't always be the case. The law of diminishing returns is going to kick in as a new generation of music fans raised on always-on internet and streaming services is just going to bypass artists that aren't available on the services they use.

He then goes deeper into the numbers, looking at what it takes to convince infringers to utilize legitimate services -- and it's here that the involved industries continue to shoot themselves in the wallet. Yes, there are some people who are never going to use legitimate means and will never pay for music, movies, etc. So, why spend so much time worrying about something you can't fix?

OK, some of the infringers who complained about being confused may be taking the piss again. After all, most people finding content online via a search engine with ‘pirate’ in its name know there’s a very high chance the content they download isn’t legal, even if they plead ignorance. So education probably won’t work with this group. Then again, these are also the people who know how to hide their file-sharing from the three-strikes police, and to circumvent the web-blocks put up in front of The Pirate Bay, so there’s probably not much you can do about them.

But remember, this was only 8% of those surveyed, so I say fuck em. Let’s focus on the 47% who implied that they want to do the right thing, but find the whole thing too confusing. Let’s stop handing over cash to lawyers and technology whizzes who want to go after the 8% and focus on doing some decent education with everyone else. Because if OfCom’s research tells us anything, it’s that the music industry’s current educational initiatives, including the Music Matters programme, which expanded into the US this week, just aren’t working in the slightest.

If you've got approximately 92% of the population to work with, why on earth would you spend your time trying to legislate, sue or otherwise inconvenience the other 8%? The thought process seems to be that only 0% piracy is acceptable and that accepting less is ceding the battle. Taking a hardline against file-sharing will only alienate potential customers. File sharing isn't limited to an "unlawful" fringe. A full 2/3rds of the study's respondents admitted to infringing activity, but if the content industries insist on treating customers as thieves, they're just going to end up with fewer and fewer customers.

The half-assed "educational" programs are a joke as well, with most of the effort going into telling people how file sharing is wrong, rather than playing up the advantages of legitimate services (please -- no more of the "your illegal download is probably a virus" ridiculousness). Or better yet, move that time, money and energy into convincing rights holders to work with existing services to make them better, by adding more content, reducing idiotic, arbitrary restrictions that make no sense with digital goods and negotiating rates that work for everyone involved.

Malt has a couple of excellent points on how to do education right. As he says, the Music Matters campaign is a farce. It fails to do anything resembling "education," preferring to use guilt as negative reinforcement rather than give the undecided a reason to choose legitimate services. Not only that, but the Music Matters mark isn't even displayed by the two largest music services (iTunes and Spotify).

I suppose Music Matters is better that the American record industry wheeling out millionaire pop stars to complain about how file-sharing is depriving them of record sales, but it still feels decidedly mediocre for an industry that, when it comes to selling artists and albums, is actually pretty good at engaging and enthusing consumers. It’s easy for me to sit here and criticise, and I don’t claim to have the answers. But for a start, perhaps instead of forcing ISPs to send out angry letters to those consumers mistakenly downloading unlicensed music files, the labels could start sending thank you letters to those who inadvertently use a legal store.

There's an idea. Thanking your customers for purchasing from you rather than taking alternate routes to the same content. It would make for some great PR and maybe start altering the general image of the average record exec as a grouchy, out-of-touch robber baron with dollar signs for eyes, surrounded by lawyers and starving musicians.

Education can be a good idea, but it needs to be handled with a much defter touch than any of the content industries seem able to manage. Think more carrot, less stick. And try to let bygones be bygones. You can't keep bemoaning the post-Napster climate when you've got a whole new generation of potential customers who are accustomed to streaming services, low prices and instant access across multiple devices. Like it or not, streaming services and single track sales are here to stay. Ad-supported apps may not bring in great money, but that's the new reality. There's no going back, no matter how much legislation you throw at the internet. A continued preference for enforcement over engagement is only going to make things worse.

from the a-little-perspective dept

Music predates agriculture. That's something I suppose I always knew, but had never thought about in such clear terms until Bryan Kim illustrated it in a talk at SFMusicTech with a photo of a 35,000-year-old bone flute. This places music before farming and written language on the timeline of humanity, right alongside the earliest known cave paintings in Europe, at the very least. By comparison, recorded music has only been around for a little over a century.

Viewed in that light, the idea that recordings are the central, defining aspect of music or the music industry is just plain ridiculous. Between that ancient flute and today, there have been plenty of different successful models for funding music. Kim points out that the one common thread throughout, which continues today, is that music's primary function is more community-building than anything else:

For most of human history, music was a public and participatory experience, inextricably linked to a plural of people synched in a real-time experience. As a binding agent of dancing and singing bodies, music could literally manifest community. And lest you think our modern society has evolved beyond the tribal utility of music, just think of religious services, major sporting events, weddings, nightclubs, road trips… when was the last time you attended one of these without some sort of collective music ritual?

...

In many ways, music is the original social network. This makes musicians founders of community. In a networked world, that’s powerful.

I found all this especially fascinating because of the conclusion Kim reached, and the model he's dubbed "crowd patronage" for supporting music going forward, combining the traditions of busking and of wealthy patrons that have been dominant in virtually all periods of history and, likely, pre-history. The idea is that you need an "ecosystem of fans" and then they will support you in exchange for "relationship access". It is, essentially, the same as what we've been calling CwF+RtB here at Techdirt. Using Kickstarter as an example, Kim elaborates:

Just like in the era of patronage, pledgers are usually not buying a commodified product. The most successful music Kickstarter projects sell you one or more of three “values”: 1) access to artist (as discussed above), 2) exclusivity and 3) recognition/participation (especially for artist’s creation).

So we’re going to see more artists open up the creation process to their fanbase. Everything from crediting fans in the liner notes, to tracking fans' recorded sounds as real stems, to skyping and polling fans during studio sessions.

As a musician, it’s already technically possible to do this. In the next few years, we’re going to find it become more culturally acceptable on both the artist and fan side. More importantly, artists are going to start finding which sorts of packages their fans actually buy, etching out the contours of a new crowd patronage “model”.

It's great to see more people reaching this conclusion, and especially interesting to see it approached from a broader historical perspective: crowd patronage or CwF+RtB is only a new or radical concept when viewed through the narrow lens of recorded music's few decades of dominance. In the bigger picture, it's actually a return to music's roots as a community tool and a tribal experience. Recorded music is still a fantastic thing that has enriched our lives and our culture in its own way—but the notion that music cannot thrive without the commoditization of discrete units doesn't withstand an ounce of scrutiny. The next time someone suggests such a thing, remind them that humans were carving flutes out of bone 20,000 years before the last ice age ended, when glaciers were still creeping towards the Great Lakes and consuming all of the British Isles, and the last few Neanderthals were still roaming around Europe. It sure makes CDs and records seem a tad less significant.

from the more-people-getting-it dept

We've detailed a few times the ridiculous standoff in Germany, where the incredibly aggressive music collection society GEMA is involved in a big lawsuit against YouTube for posting videos with music in them. YouTube has done licensing deals with collection societies around the globe, but GEMA refuses to even sit down to start a conversation until after the lawsuit happens. Because of that, all GEMA music in Germany is barred from YouTube entirely. This leads to some situations in which totally licensed videos are banned in Germany. This has been going on for years and years with no change.

GEMA, of course, says that it's doing this to "protect" the artists. But as I've pointed out in the past, many, many artists in Germany don't believe that at all. In the past we've noted that GEMA tried to ignore Creative Commons licenses as well as barred members from offering their music for free (two years ago, when I was in Germany at a music conference, I had multiple artists explain to me they had an "official" website where they would "sell" music to keep GEMA happy... and an "unofficial" website where they'd offer their music for free. The whole thing is crazy.

In fact, it's gotten so crazy that apparently even the major labels are getting sick of it. TorrentFreak has the news of a top Sony Music exec, Edgar Berger, who runs their international business, talking about how the internet hasn't been a problem at all, but has created tons of new opportunities. The ones creating the real problems for the industry? GEMA. Because the music is blocked "to protect the artist," it appears that the labels and artists are missing out on large revenue checks from YouTube's ContentID...

“There is absolutely nothing to complain about. The Internet is a great stroke of luck for the music industry, or better: the Internet is a blessing for us,” Berger said.

“You can not blame the Internet for harmful excesses. On the contrary. It has brought us tremendous new opportunities,” he added.

But with these new opportunities come new rivals from an unexpected corner. According to the Sony boss, music rights collecting agencies are now preventing innovation in certain countries.

In Germany, for example, most YouTube videos by Sony artists are blocked due to the music rights group GEMA, and not because Sony wants it that way. When asked why Sony’s music is not available on YouTube in Germany, Berger responded bitterly.

“It’s not because of us. You must direct this question to the German collecting agency GEMA, they licensed the copyright very restrictively.”

Quite a contrast from the "old" story, right? Here's a situation in which technology and business model innovation via Content ID are creating massive new revenue opportunities for the entertainment industry -- and the old school system of excess protectionism is denying them that revenue.

from the indeed dept

For many years, I've used TuneCore as one of the key examples of the new generation of middlemen who served as enablers rather than gatekeepers for artists. The company has a clear record of really helping tons and tons of artists make money from their music in ways that were entirely impossible for most of those artists previously. It's a true success story. That's why I have to admit that I was somewhat disappointed in late 2010 when TuneCore's CEO Jeff Price came out in favor of COICA, the problematic predecessor to SOPA and PIPA. Thankfully, since then it appears he's realized the error of his ways.

Beyond his continually awesome series of posts providing tons and tons of useful data that the legacy recording industry has totally ignored, he's written a brilliant response to Cary Sherman's NYT op-ed that we've been discussing. Price points out that the real disinformation campaign has been from the RIAA, and the key point is that the RIAA does not represent artists, but rather it represents the major labels, who very frequently have agendas that are at odds with artists:

The RIAA has become part of the problem of protecting copyright due to its occasional less than honest approach to things. You just can’t take what the RIAA says at face value as their agenda is not clear—is it to protect copyright or is it to protect the interests of its label members at any cost?

Now add to this that as the RIAA demands that its label members’ copyrights be respected and properly compensated, its members have knowingly taken hundreds of millions of dollars of other peoples’ songwriter royalties over the past few years. Knowingly taking money generated from the copyrights of others—aka “Black Box Money”—sounds eerily like stealing.

Furthermore, he notes that the RIAA's strategy here now puts it at odds with what's actually best for musicians. He goes on to point out that SOPA/PIPA in their original forms might have actually been the end of a service like TuneCore:

However, if the original SOPA and PIPA bills were passed years ago, TuneCore most likely would not have existed, and power would still be concentrated with the old regime; they would have found a way to slow the market shift away from them. In the guise of “protecting copyright” the original SOPA bill would have provided the RIAA unilateral and almost unchecked power to kill the new emerging industry.

All the RIAA would have had to do is claim that music distributed by TuneCore was infringing on its label members’ copyrights. With limited to no due process, TuneCore could have been shut down just like Dajaz1.

And I can assure you, from time to time TuneCore gets illegitimate and wrongful claims of infringement by the RIAA (and some of its label members).

No matter how much the legacy players in the industry want to claim that it was "just Google" that helped kill the bill, there's simply no way anyone can credibly claim that TuneCore is a Google puppet. In fact, I think it's clear that TuneCore has been one of the most useful tools out there for getting artists paid. And it's coming out strongly against the RIAA on this one, highlighting the key point that too often gets lost in this debate. The RIAA represents the gatekeepers, not the artists. This has never been about protecting content. It's always been about protecting gatekeepers.

And, indeed, there are certainly some questions about the accuracy of the report, which involves self-reported user surveys -- generally not the most reliable method of getting accurate data on something like file sharing (especially in the wake of something being shut down for being "illegal.") That said, the numbers are big enough that even if they're a bit off, it certainly does suggest something happened, and just to be nice, I'll even grant the basic premise that file sharing in the US slowed down when Limewire shut down. Limewire historically has been popular, though not with the more technically savvy folks, but with a more general crowd, who tended to treat it much more like radio than as a way to "obtain" music.

But here's the big question: assuming we accept this massive dropoff in P2P file sharing, was there a corresponding jump in music sales?

I am pretty sure that we won't see a corresponding giant leap in music sales for the same quarter. And that's kind of the point that we've been making all along. For all this talk of enforcement, why can't anyone provide any evidence that it actually leads people to go back to buying stuff? In the case of Limewire, since most users didn't really look at it as a replacement for sales, but as a replacement for radio, it's not likely that they're suddenly going to run to start paying. Instead, they'll switch to other options, whether it's YouTube, Pandora, GrooveShark or something else. If Spotify were actually available in the US, I would bet that it would sop up many ex-Limewire users.

And that's really the major point here. Rather than seeing this decrease as a "victory" for the RIAA (as some have suggested), it highlights what an astounding lost opportunity it has been. Limewire, whatever its faults, was very eager to work with the recording industry to monetize the massive user base it had. And the record labels refused, just as they refused to negotiate with Napster a decade ago (something many in the industry now claim to regret -- despite the fact that they've done it again and again and again). So rather than taking that opportunity, it's been squandered. Similarly, if the record labels got their act together, services like Spotify would have launched in the US long ago. But the labels keep demanding more and more ridiculous conditions on the deal, and thus, the people go elsewhere... often to places where the labels won't get paid at all.

This is what happens when you mistakenly think that the thing to focus on is stopping infringement rather than making more money. It's the "but... but... piracy" argument all over again, where people get so focused on that, they forget the endgame. So, sure, the shuttering of Limewire may have stopped people from using P2P to obtain files. But will it actually get people to buy? Unlikely. And that's a massive squandered opportunity.

from the but-is-it-enough-to-matter? dept

Vivek Wadhwa has an interesting post at TechCrunch, pointing out that much of the world beyond the US, Europe and BRIC (Brazil, Russia, India, China) are effectively a patent free zone. Even if many of these places do have patent laws, very few companies find it worth the trouble to file for patents in those places -- and, technically, that means that anyone producing products in those areas can legally copy from the patents filed elsewhere.

Take the iPhone as an example: it has over 1000 patents; yet Apple does not apply for patent protection in countries like Peru, Ghana, or Ecuador, or, for that matter, in most of the developing world. So entrepreneurs could use these patent filings to gain information to make an iPhone-like device that solves the unique problems of these countries. Apple has so far received 3287 U.S.-issued patents and has 1767 applications pending: a total of 5054 (for all of its products). Yet it has filed for only about 300 patents in China and has been issued 19. In India, it has filed only 38 patent applications and has received four patents. In Mexico it has filed for 109 and received 59 patents. So even India, China, and Mexico are wide-open fields.

Of course, if you were to make an iPhone in Peru or Ghana, you wouldn't be able to export it to the US, as then it would again be considered infringing. So, the market size for a "legal" knockoff iPhone might be pretty limited. On top of that, there's a pretty good reason why companies like Apple don't bother filing for patents in these places: the economy and the local infrastructure really aren't advanced enough to make a difference. So, even if these are "patent free zones," the lack of other institutions to make innovation and economic growth important mean that this really doesn't matter very much.

Still, it does raise some questions about if there are "opportunities" within those patent free zones. Certainly, it would not be a historical anomaly to see part of the patent free zone step up and use that fact to help it industrialize. As we've seen in the past, countries like Switzerland and the Netherlands used the fact that they were patent free zones for parts of the 19th century to speed up their industrialization process. But, of course, as we saw with both of those, once their industries got big enough, foreign competitors started to freak out and put tremendous pressure on those countries to put in place patent laws.

However, there are some areas where the ability to ignore patents could be quite helpful, especially for areas that could massively help those developing nations:

Take desalination, in which GE is one of the largest players. GE has spent more than $4.1 billion to acquire its part of the desalination business. Yet a decade after commencing, they're still nowhere close to making desalination affordable and sustainable. GE's progress depends on the patents it owns. As of 2009, GE invented 47 of the 832 U.S. patents in this field--just 5.6%, or a little more than one-twentieth. Consider the progress that GE could make if it could also use any of the patents that it doesn't own--of which there are many.

How much better would the world be if we didn't have to spend another ten years waiting for innovation in the desalination space? There are many areas of collaboration in the Patent-Free Zone that could produce innovative solutions for our world. Solar power, electric cars, mobile technologies for the poor, disease eradication, medical devices, food processing--to name a few. Wouldn't it be ironic if poor countries ended up solving the problems of the rich?

Silicon Valley, as a broad generalization, doesn't worry about "threats." Instead, it tries to treat them all as opportunities. So, if Fannin is upset to see folks focusing on Twitter and the iPhone rather than the fact that China is building up a healthy and rapidly innovating tech economy, she may be focusing on the wrong thing. It does little to "fret" about the next big threat. There are always people warning about this or that big threat. A dozen years ago, it was how Japan was going to take over the tech industry. That didn't exactly happen. Sitting around and worrying about a threat doesn't make much sense.

Instead, it makes sense to pay attention to opportunities. And, many, many, many people in Silicon Valley view China as a huge opportunity. And, yes, new companies and technologies will flow out of China -- and it will present formidable competition -- but, again, competition isn't a real threat, it's an opportunity to do something even better and more innovative. So, I'd disagree with the assertion that Silicon Valley has its head in the sand about the rise of Chinese innovation. We're just focusing on how to make them opportunities.